The Economy and Bond Market Radar (March 12, 2012)
Treasury bond yields rose this week as economic data was generally positive and the “risk on” trade continues.
The employment report was released on Friday and key components of the report were better than expected. Nonfarm payrolls rose by 227,000 in February and the prior two months were revised higher by 61,000. The unemployment rate was stable at 8.3 percent as the participation rate rose modestly. You can see from this chart that the trend in payrolls has been positive and if this continues, it may force the Federal Reserve to rethink its strategy.
Strengths
- Nonfarm payrolls rose 227,000, ahead of expectations and upward revisions tacked on an additional 61,000 to total for the last two months.
- Japanese fourth quarter GDP was revised sharply higher to 0.7 percent versus the initial reading of a 2.3 percent decline.
- The Chinese Consumer Price Index (CPI) fell to 3.2 percent year-over-year and gives policymakers room for easier monetary policies.
Weaknesses
- China cut its 2012 growth target to 7.5 percent as the country attempts to move toward more domestic consumption and less reliance on exports.
- Chinese February industrial production disappointed, growing just 11.4 percent.
- After Brazilian 2011 GDP was disappointingly slow at 2.7 percent, the central bank responded this week by cutting interest rates by 75 basis points.
Opportunities
- The Federal Reserve meets next Tuesday and it appears likely that there will be no change in monetary policy. This implies continued low interest rates for the foreseeable future.
Threats
- U.S. inflation data for February will be released next week and could surprise to the upside due to higher oil prices.
